CBIRC Issues the Notice on Insurance
Funds’ Participation in the Business of Credit Risk Mitigation Tools and Credit
Protection Tools

In order to enhance the role
of insurance funds in serving the real economy, and enrich the utilization of insurance
funds, the CBIRC recently issued the Notice on Insurance Funds’ Participation in
the Business of Credit Risk Mitigation Tools and Credit Protection Tools (hereinafter
as the “Notice”).

The Notice is a vital measure of the CBIRC to implement the central government’s
guidelines of supporting the financing of private enterprises. Insurance funds’
participation could further enrich the investment tools for insurance funds and
offer hedging tools for credit risk management; it can also fully activate insurance
funds and make full use of them as long-term stable funds, so as to better support
the financing of private enterprises; additionally, it can improve the investor
structure and liquidity of bonds issued by private enterprises and promote the bond
issuance.

The Notice is aimed to allow and regulate the insurance funds’ participation
in the business of credit derivatives. In the Notice, seven requirements are specified.
The main contents are: first, the participation purpose should be clarified. The
insurance funds’ participation in the business of credit derivatives is only limited
to hedging risks and the funds cannot be risk takers. Second, the qualifications
of the participants should be clarified. To participate in the business of credit
derivatives, insurance organizations must have the capability of managing derivatives
and credit risks. Third, the insurance funds’ participation should follow both the
CBIRC’s rules on financial derivatives trading and the business rules of National
Association of Financial Market Institutional Investors (NAFMII), Shanghai Stock
Exchange (SSE), and Shenzhen Stock Exchange (SZSE). Fourth, risk management should
be strengthened. Insurance companies should formulate relevant management rules
and operating procedures, monitor and regularly assess risks, and report to the
CBIRC monthly, quarterly and annually.

Going forward, the CBIRC will
continue to support financing the real economy through various channels, and improve
the quality and efficiency of serving the real economy.